RBI raises short-term borrowing limit for states and UTs by 30%

States’ short-term borrowing limits have been increased by as much as 30% as they face pressure on revenues with economic activity coming to a halt and the transfers from the Central government also getting crushed due to lower Goods and Services Tax collection.

ET Bureau|

Last Updated: Apr 02, 2020, 06.30 AM IST

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The RBI has been easing norms and pumping in liquidity in the past few weeks as companies reel under the impact of the national lockdown.

Mumbai: The Reserve Bank of India has come up with another round of measures to cushion the impact of the Covid-19-induced shutdown with a focus on the finances of the states, some of which have announced staggered payment of salaries.

States’ short-term borrowing limits have been increased by as much as 30% as they face pressure on revenues with economic activity coming to a halt and the transfers from the Central government also getting crushed due to lower Goods and Services Tax collection.

Banks, which are bearing the brunt of the moratorium announced last week, would get some reprieve in meeting regulatory norms in respect to the capital needs, the central bank said in a statement.

“It has been decided to increase WMA (ways and means advances) limit by 30% from the existing limit for all states/UTs (Union territories) to enable the state governments to tide over the situation arising from the outbreak of the Covid-19 pandemic,” the Reserve Bank said in a release. The revised limits came into force on April 1, 2020 and will be valid till September 30, 2020.

The RBI has been easing norms and pumping in liquidity in the past few weeks as companies reel under the impact of the national lockdown. It came up with a blanket moratorium option for both corporate and retail borrowers.

To reduce the pain inflicted by the moratorium, the central bank has provided some relief to banks which were to meet strict capital norms that required that they raise their capital adequacy, known as the Countercyclical Capital Buffer (CCyB).

“Based on the review and empirical analysis of CCyB indicators, it has been decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary,” the RBI said.

Furthermore, exporters got a relief in the form of keeping their proceeds offshore for 15 months instead of 12 months now.